Leases Flashcards
First Criteria in New GAAP
The lease transfers ownership of the underlying asset to the lessee by the end of the term of the lease
Second Criteria in New GAAP
The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to excercise
Third Criteria in New GAAP
The lease term is for the major part of the economic life of the underlying asset
Fourth Criteria in New GAAP
The Present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset
Fifth Criteria in New GAAP
The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term
What rate is always used in NEW GAAP
lessors implicit rate
Operating Lease for NEW GAAP first journal entry
D Right of use asset Cr Liability of present value of lease
How are Operating leases in NEW GAAP amortized
Equals to cash paid called rent expense or lease expense
Effective interest method to calculate interest expense amortization is difference between interest and cash paid
1st Criteria Old GAAP
Ownership is transferred to the lessee
2nd Criteria Old GAAP
The lease contains a bargain purchase option
3rd Criteria
The lease terms equals or exceeds 75% of economic life of the asset
4th Criteria Old GAAP
PV lease payments 90% of fair market value of leased asset
LESSOR BONUS STEPS TO BE CAPITAL LEASE
1) Collectibility of payments is reasonably assured
2) No important uncertainties concerning in reimbursable costs to be borne by lessor
Bargain Purchase Option
The option to purchase the asset at the end of the lease at an amount such that excercise of the option is reasonably assured
Bargain Renewal Option
The option to renew the lease at the end of the lease term at a payment that excercise of the option is reasonably assured
